U.S. regulator approves IEX as nationwide stock market

© Reuters. The headquarters of the United States Securities and Exchange Commission are seen in Washington

By Chuck Mikolajczak NEW YORK (Reuters) – The United States Securities and Exchange Commission has approved alternative trading group IEX Group Inc’s demand to release a new U.S. public stock exchange, in a move likely to heighten arguments over current market structure. IEX, made well-known by Michael Lewis’ 2014 book “Flash Boys: A Wall Street Revolt,” is significant since it would be the only exchange in the United States to consist of a so-called speed bump – a 350 millionths-of-a-second hold-up in all incoming and outbound orders. According to IEX, that hold-up safeguards investors from high-frequency traders who can detect trading signals and utilize their faster technology to electronically front-run slower financiers. The SEC approved the speed bump under exactly what it called an interpretation of Policy NMS, for National Market System, which prohibited intentional delays of cost screens. Despite that regulation, the firm said it had actually figured out that “a little delay will not prevent investors from accessing stock prices in a reasonable and efficient way.” “We are grateful and humbled by the assistance we have actually gotten from the investor neighborhood, without it, we may have dealt with a various result,” stated Brad Katsuyama, co-founder and president of IEX. “This is a turning point for all those who have supported IEX and we anticipate becoming a stock exchange, which will supply us the opportunity to have an even higher impact on the markets.” In associated choices, the SEC stated it will now consider hold-ups of less that a person millisecond at a “de minimis” level and will also perform a research study within 2 years to figure out the impact of intentional hold-ups on market quality, including asset rates. Other exchanges, consisting of Nasdaq, the New York Stock Exchange and BATS Global Markets, have actually intensely opposed the idea of IEX acquiring governing approval as a U.S. stock market. Nasdaq has actually recommended that any SEC approval might be legally challenged. Nasdaq decreased talk about the decision while a Bats spokesperson said, “Bats praises IEX and appreciates the significant modifications they made to their application to deal with industry concerns.” Jamil Nazarali, head of Citadel Execution Services at Castle Securities, one of the biggest personal U.S. trading venues, has actually been a vocal critic of the application. “Today’s choice will test and potentially reverse the gains in fairness, performance and openness that have been made to our markets over the last years,” he said. “We must be watchful to determine unexpected consequences, and company in our commitment to fair and constant treatment for all financiers.” The approval marks the very first time in three years that the SEC has approved a brand-new trading exchange. The most recent approval was when International Securities Exchange’s alternatives exchange, ISE Gemini, received the thumbs-up in July 2013. The IEX choice comes as the biggest exchanges have actually been losing market share to personal trading places, called dark pools, and other more recent exchanges. The New York Stock Exchange and NYSE Arca, for example, integrated for about 29 percent of market share in 2009, based on trading volume. They now have about 24 percent market share this year, according to Rosenblatt Securities data. Any new exchange coming online would add a gamer to the pie, implying profits from market individuals would be divided among more contending exchanges. In addition, IEX’s speed bump might dampen trading volumes, which would likewise drag out exchange earnings. IEX anticipates to execute trading in all stock signs on Sept. 2, stopping operations of the IEX Alternative Trading System (ATS), likewise called a dark swimming pool, according to its website.

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